For the average UK family, household bills cost around £1,170 in comparison to households with a healthy credit score. Your poor credit rating could slowly be deteriorating your overall financial health, and you may not even realise. Credit records provide information about how you have managed your credit and borrowing in the past. Lenders will then use this information when deciding whether to risk lending you money, and how much interest to charge.
If you have a poor credit rating, then this doesn’t just affect whether you can get a mortgage, loan or credit card. A bad credit record could also mean you miss out on the cheapest deals for gas, electricity, mobile phones and broadband. Providers will often check your credit rating before doing business with you. If you have a low score, they may charge a higher tariff just in case you don’t pay your bills.
It’s a vicious cycle, but families with poor credit scores face paying on average £138 more for their energy bills, £115 more for broadband and £43 more on mobile phones, according to research. This may be cash that you really cannot afford to lose.
Even buying necessary items or appliances like a car or a washing machine could become more expensive. Your bad credit score will mean you are likely to pay a higher interest rate when taking out a car loan or getting finance for household appliances. This will add thousands to the overall cost and inevitably worsen your financial situation.
If you feel like your credit score is spiralling out of control, it may be time for a credit score clean up. There are a number of manageable steps you can take to improve your credit rating. So, if you’re trying to improve your financial health, then here is how you can make a positive start:
1. Always make sure you are on the electoral register.
2. Pay your bills on time – we can’t emphasise this enough. Whether it’s your mortgage payments or your energy bills, make sure you have set up direct debits so you avoid paying late or missing payments.
3. Don’t ignore your credit record, make sure you check it and correct any mistakes. This includes simple factual mistakes like old addresses. You can receive a copy of your statutory credit record for £2 each from credit agencies, Experian, Equifax and Callcredit.
4. Don’t apply for lots of forms of credit at the same time, or within the same year.
5. Don’t max out your borrowing – aim to borrow less than 75% of your limit. For example, if your credit card limit is £500, try not to spend more than £375 without paying it off.
6. Pay down debts where possible, so your credit report doesn’t show large amounts of borrowing.
7. Close down old credit card accounts and cancel old direct debits. Companies will look at how much credit is available to you, not just how much you are currently borrowing.
8. Break any money connections with ex-partners, so you no longer share joint accounts or joint loans.
9. If you don’t have a credit history, why not consider taking card or store cards and show you can spend manageable amounts and pay them off in full and on time.
10. If you have previously had a County Court Judgement and it has now been settled, always make sure the settlement has been recorded on your credit file. You can also place a Notice of Correction explaining missed payments due to illness or unemployment.